The banking sector has been growing in leaps and bounds and the following chart encapsulates its story over the last decade or so:
Lending rates have gradually been reducing over the years, to as low as 16.3% in November 2013 while the aggregate commercial banks loan book has averaged growth of 29% over the last 10 years. Macro-economic fundamentals, competition and improvement of structures within the financial services sector have led to an increase in lending over time.
Last year was an interesting year for the banking sector – they had to meet minimum capital requirements (Local banks K104m, Foreign banks K520m), sort out their systems to accommodate re-basing of the Kwacha , contend with regulation which capped lending rates to 18.25% as well as other regulation enacted in 2013. So how did the close the year?
The following review is based on the year-to-date numbers from the Q4 2013 financial statements of 12/19 commercial banks in Zambia as published in various media. Only 4 of the 12 are publicly traded on the Lusaka Stock Exchange so this is the best way to compare the majority of commercial banks with each other :
Zanaco led all banks by bringing in K645.5m in total interest income followed by Stanchart (both banks are traded on the Lusaka Stock Exchange). The huge gap between the big 4 banks and the rest replicates itself in many other metrics as well.
Net income worked out as follows:
Stanchart was the most profitable, bringing in a whopping K239.6m, 57% more than the next highest (Zanaco). Special mention must be reserved for Citibank for almost equaling Barclays in profitability (more on this later). Cavmont and Ecobank lost K17.8m and K7.2m, respectively.
The core asset of any successful commercial bank is its loan book. Which bank closed the year with the biggest loan book?
Stanbic led the pack with a K3.2bn loan book closely followed by Barclays and the rest of the big 4. Barclays has a loan book size 11 times bigger than Citibank – so how the heck did Citi almost match them in net profit? Well the following chart should help clear up why Citibank earnings seem to be defying logic:
Citibank was and is one of the major holders of Government bonds/T-bills which have deliciously high yields (which might inch up further this year). The bank generated 67% of total interest income (K103m) from government securities – couple that with lower expenses than Barclays and you get almost identical net income numbers. We like to refer to Citi as “Bruce Lee ta pompele” (“Bruce Lee wasn’t huge”).
In terms of deposits, the commercial banks ended the year as follows:
Commercial banks in Zambia have been increasing their presence all over the country in a bid to tap more of the large chunk of the population which remains unbanked. So who is the biggest bank in terms of assets?
Zanaco, the lone domestic bank amongst the big 4 closed the year with K6.9bn in assets. However, It’s one thing to have the biggest assets but most analysts will tell you that how you use them is what counts - a metric adequately measured by ratio ‘return on assets’:
Stanchart and Citibank used their assets in the most profitable manner returning 4.3% and 3.6% respectively. Barclays, for a big 4 bank was one of the least profitable in terms of ROA, returning a measly 1.5% in 2013. Ecobank and Cavmont made losses for the year hence their negative return on assets ratio.
2014 will be an interesting year for the banking sector primarily because it will show us which of these banks positioned themselves the best to adapt to interest rate caps (which will put a squeeze on historically high interest income). We will definitely see more intense competition; a few more banks start to lose money (especially the smaller banks), more participation in government securities auctions and possibly more innovative products.
Trying to decipher this puzzle that is Zambia by using a variety of publicly available data (structured and unstructured) in conjunction with my own skill/experience. * * *